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CU System

Court upholds corporates right to sue appraiser

BIRMINGHAM, Ala. (9/24/10)--An appeals court in Alabama has upheld a corporate credit union's right to sue the appraiser who provided valuation of U.S. Central FCU's Paid-In-Capital (PIC) shares for conversion before U.S. Central suffered losses and went into conservatorship. The U.S. Court of Appeals for the 11th Circuit in Birmingham, Ala., ruled that the Alabama-based Corporate America CU can sue RubinBrown LLP, a St. Louis-based company hired to prepare a valuation of the PIC shares. The firm was hired after U.S. Central reported a write down in 2008 of mortgage-backed securities and its credit and debit ratings were downgraded, according to the court report. U.S. Central converted $450 million of member capital into PIC shares, which became worthless, said the suit. RubinBrown had challenged a lower court's rejection of its defense that Corporate America was bound by an arbitration clause as a third-party beneficiary. However, the appeals court ruled that a binding-arbitration clause in the agreement with the appraiser could not prevent the suit. "Corporate America is not a party to the contract between RubinBrown and U.S. Central ... After a review of the record, we conclude that these arguments are without merit," said the appeals court, which agreed the arbitration agreement in this case "was party specific." It also concluded that the corporate should not be compelled to arbitrate its claims under the doctrine of "equitable estoppel." "Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes," the court said. "The purpose of the doctrine is to prevent a plaintiff from, in effect, trying to have his cake and eat it too; that is, from relying on the contract when it works to his advantage by establishing the claim, and repudiating it when it works to his disadvantage by requiring arbitration," the appeals court said in the ruling. "Because Corporate America's claims are not intertwined with the contract between U.S. Central and RubinBrown, the court did not abuse its discretion in declining to compel arbitration under the doctrine of equitable estoppel," the ruling said.